The ACA’s Basic Health Program Option: Federal Requirements and State Trade-Offs

Key State Policy Questions

In this section of the paper, we begin by discussing the reasons some states have considered implementing BHP. We then explore the two main areas of concern that have been raised as arguments for not moving forward: namely, BHP’s fiscal risks for states and BHP’s potential adverse effects on marketplaces.

Rationale for BHP

Several states have seriously considered BHP. Depending on the state, the objectives prompting consideration have included the following:

Increasing the affordability of coverage for low-income adults. One analysis attempting to quantify the potential gains in this area found that providing BHP coverage like that offered by many state CHIP programs would lower monthly premiums for the average eligible adult under 200% FPL from $100 a month, in subsidized marketplace plans, to $8 a month.1 It also found that average annual out-of-pocket costs would fall from $434, in subsidized marketplace plans, to $96. Making coverage more affordable could increase low-income consumers’ willingness to enroll and, once enrolled, to obtain necessary non-emergency care.

Experience with 2014 QHP enrollment reinforced the importance of these goals. An inability to afford coverage was the most commonly reported reason consumers remained uninsured as of June 2014, according to the Health Reform Monitoring Survey, a quarterly survey of the nonelderly that monitors ACA implementation. Among the uninsured with incomes between 139 and 400% FPL—the main target group for marketplace subsidies—52% cited financial reasons for not enrolling.2 However, within that group, 40 percent had heard “little or nothing” about subsidies; and even among the remainder, who reported hearing “some” or “a lot” about subsidies, the perceived unaffordability of QHP coverage may not reflect accurate and complete information about available assistance.

Reducing “churn” between health plans. If Medicaid, CHIP, and BHP were combined so that the same health plans served all residents with incomes at or below 200% FPL, the total amount of “churning” between Medicaid plans and marketplace plans would decline by 16%, according to the only published analysis that took into account unaccepted offers of employer-sponsored insurance.3 Moreover, final BHP regulations permit states to provide BHP enrollees with continuous, 12-month eligibility, based on household circumstances at the time of application, regardless of later, mid-year changes. In fact, federal BHP funding is premised on such continuous BHP eligibility, as noted earlier.4 Implementing such continuous eligibility could greatly reduce mid-year transitions between insurance affordability programs.

Protecting consumers from the risk of tax reconciliation. As noted earlier, BHP consumers do not receive APTCs and so are not subjected to tax reconciliation. Shielding uninsured consumers from this risk could increase their willingness to enroll into subsidized coverage. Once the APTC reconciliation requirements become widely understood, some consumers who qualify for APTCs could choose to remain uninsured rather than risk losing tax refunds or owing money to the federal government due to tax reconciliation.

Achieving significant state budget savings while preserving existing access to care for beneficiaries of pre-ACA state programs. Before the ACA, some states covered low-income adults through Medicaid waiver programs or using state-only funding. This coverage was typically much more affordable for consumers and, in some cases, offered more generous benefits than subsidized marketplace insurance. BHP lets states continue pre-ACA coverage for these groups, while substituting federal for state funding. Otherwise, such states face the dilemma of either: (1) moving their residents into the marketplace—thus saving state money but increasing residents’ health care costs and potentially reducing their access to care—or (2) continuing to provide low-income residents with state-funded help—thereby preserving their pre-ACA access to care but persisting with state expenditures not paid by other states for similar populations.

Providing coverage that reflects state rather than federal policy preferences. Some state officials expressed interest in using BHP to provide low-income consumers with coverage like that furnished to children at similar income levels under state CHIP programs. They sought to use approaches preferred by state policymakers, rather than providing subsidies defined in federal laws governing marketplace coverage. In other states, officials felt that objectives related to delivery system reform might be better achieved with direct state control through BHP rather than through marketplace QHPs, particularly in federally facilitated marketplaces.

State fiscal issues

While BHP offers states federal funding that can be used to provide low-income consumers with more affordable coverage, its financing structure creates fiscal issues for states. Federal BHP funding equals 95% of what the federal government would have paid in premium and cost-sharing subsidies for BHP enrollees. If that funding proves insufficient to cover program costs, states will be responsible for covering any shortfalls. States must thus carefully compare BHP costs to available federal funding, taking into account any state savings created by BHP. This section explores these fiscal issues and discusses strategies for mitigating state risks.

Estimating total federal funding and State BHP Costs

A critical step in assessing the financial feasibility of BHP and estimating available federal funding is to identify the characteristics of BHP-eligible consumers. Previous sections of this report explain how CMS will set federal funding amounts for particular BHP consumers, but to project total federal funding levels, states will need to estimate the distribution of BHP-eligible consumers, by geography, age, and income. Among surveys conducted by the U.S. Census Bureau, the American Community Survey (ACS) has the largest state-specific samples and so is likely to provide the most reliable estimates. However, a limitation of this data set is that ACS data do not include information about offers of employer-sponsored insurance (ESI), which almost always preclude subsidy eligibility.5 States that fail to take such offers into account will overestimate the prevalence of relatively high-income BHP-eligible consumers, since ESI offers grow increasingly common as income rises.6 As a result, such states will underestimate federal BHP funding per BHP enrollee, since QHP subsidies, hence BHP funding levels, decline as income rises.

State BHP rules will affect federal funding. A state could structure its BHP program to boost the enrollment of consumers who qualify for particularly high federal funding levels. A state might encourage the enrollment of low-income BHP consumers, for example, by entirely or almost entirely eliminating premium charges for enrollees below a specified FPL level. Such consumers receive particularly large QHP subsidies and so would draw down particularly high federal BHP payments. Increased enrollment of low-FPL consumers, relatively to those with somewhat higher FPL levels, would likely increase the overall ratio of federal funding to state BHP costs, perhaps by non-trivial amounts.

States must carefully estimate BHP costs, exploring mechanisms to reduce those costs, if needed. Medicaid expenditures per member per month for healthy adults, increased to furnish provider reimbursement and associated plan payments to somewhere between Medicaid and QHP levels, can represent a useful starting point for estimating the cost of BHP adult coverage.7 A state can lower those costs by increasing out-of-pocket cost-sharing above Medicaid levels, which lowers utilization. Along similar lines, varying the scope of covered benefits can affect BHP coverage costs.8 The state could also impose or raise consumer premium charges.9

Provider reimbursement and associated plan payment levels also influence BHP coverage costs. A state that further raises these amounts above Medicaid levels will increase BHP costs. If that increase would cause state costs to exceed federal funding levels or state policymakers’ fiscal targets, offsetting program changes may be needed, such as benefit reductions or increases in consumer cost-sharing (so long as they do not violate the baseline federal requirement that BHP consumers must receive at least the covered benefits and cost-sharing protections that would have been available in the marketplace).10 On the other hand, a state could reduce BHP costs by lowering provider and plan payments towards Medicaid levels, but that would limit provider networks, with potentially adverse effects on access to care, depending on the state.

States can finance BHP administrative costs through assessments on BHP participating plans. As explained earlier, federal BHP dollars cannot directly pay for BHP administration. However, states can leverage BHP’s new infrastructure to obtain administrative funding. As CMS explained, “states have the option to establish sources of non-federal funding to help offset administrative costs associated with BHP. Non-federal resources can include assessments imposed on BHP participating plans.”11

A BHP can thus fund administrative costs by surcharging BHP-participating plans. The resulting revenues are non-federal resources, which can pay BHP administrative expenses. Those assessments are part of standard health plans’ costs, funded through premiums. The premiums, in turn, are paid using federal BHP funds. Many marketplaces use a similar strategy by raising administrative funds through QHP assessments. QHPs incorporate those assessments into higher premiums, which federal PTCs help pay.

Potential state budget savings

States assessing their potential financial exposure could also consider potential sources of state budget savings that might result from BHP implementation.

State-funded populations could be shifted into BHP. Depending on state circumstances, the resulting state savings may involve the following groups:

Lawfully present pregnant non-citizen women whose incomes are at or below 138% FPL receive, in many states, optional Medicaid coverage under Section 214 of the Children’s Health Insurance Program Reauthorization Act of 2009 or CHIP coverage. No maintenance-of-effort requirement applies to such women over age 18. A state implementing BHP could move them into federally-funded BHP without reducing their benefits or increasing their costs.

Other lawfully present non-citizens whose incomes are at or below 138% FPL and who are ineligible for federal Medicaid funds because of immigration status receive state-financed health coverage in some states. Without BHP, such immigrants could receive subsidized QHP coverage, which may be significantly less affordable than what the state previously furnished. BHP would let the state continue providing those immigrants with coverage along pre-ACA lines while shifting the cost of their care to the federal government.

Pregnant women with incomes between 138 and 200% FPL receive optional Medicaid coverage in most states. A state implementing BHP could move such women who are over age 18 (to whom maintenance-of-effort requirements do not apply) into federally-funded BHP while preserving all the benefits and cost-sharing protections formerly provided by Medicaid. In some states, when women in this income range become pregnant, they must move from QHPs to Medicaid plans if they want to access Medicaid’s additional services and cost reductions. If BHP is provided through the same plans that serve Medicaid beneficiaries, women could stay with the same plan and provider when they get pregnant without surrendering Medicaid’s services and cost-sharing protections. Preserving continuity of care during pregnancy would ameliorate this potentially important form of churning, affecting low-income pregnant women, not discussed above.

BHP “covered lives” may give states additional negotiating leverage to obtain lower bids from plans or providers seeking to serve both Medicaid and BHP consumers. Even a small percentage reduction in Medicaid’s per member per month costs could yield significant savings, given the total size of Medicaid managed care contracts in most states. Savings might also result from lower per unit costs if BHP is added to administrative services contracts that benefit multiple, state-administered health programs.

BHP benefits could be structured to substitute for state-funded services. For example, BHP could provide coverage for services such as mental health and substance abuse treatment of an amount, duration, and scope that exceeds the commercial benefits covered by QHPs. BHP provider networks could also be structured to assure or increase state fiscal gains in these areas.

Limiting State Financial Risks

As noted earlier, a state that implements BHP assumes the risk of a larger-than-anticipated gap between state BHP costs and federal BHP funds. Policymakers may be concerned that more than an expected amount of state general funds could ultimately be required to cover any resulting shortfall. Despite the efforts by federal officials to ensure a predictable level of federal funding, states face some inevitable uncertainties. The most important such uncertainties may involve fluctuating QHP benchmark premiums during the early years of marketplace operations, which directly influence federal BHP funding amounts. Such uncertainties are mitigated by CMS’s publication of BHP payment amounts for each year in February of the previous calendar year and state options to base a year’s BHP payments on the previous year’s QHP benchmark premiums, trended forward based on CMS national projections. These two policies give states time to respond when QHP benchmark premiums change in surprising ways.

To limit fiscal uncertainties associated with the BHP, states can explicitly share risks with health plans through contractual contingencies. For example, a small proportion of payments to health plans could be held back until after the end of the year. Along similar lines, health plan contracts could reserve the right for states to reduce payment amounts if unforeseen shortfalls emerge. Similar contract language is already standard in many states for Medicaid and other programs.

States can maintain modest funding reserves to cover future shortfalls. CMS has made clear that a state is not required to spend all of its federal BHP funding during the year in which such funding is provided. One year’s funds can be retained and used for future BHP consumers.12 A state BHP could thus carry over modest reserves to guard against future contingencies.

States must carefully consider the trade-offs of any strategies to mitigate financial risks. If a state uses its leverage with health plans to ask them to share risks, the state will have less leverage to obtain other desired concessions. And if for a given year a state holds some federal BHP funds in reserve, such a decision could translate into fewer covered services, higher costs for beneficiaries, or lower reimbursement levels for plans (and hence providers) during that particular year.

Impact of BHP on a state’s marketplace

Implementing BHP will reduce the size of the state’s marketplace and potentially change its risk pool. This section explores those effects.

A smaller marketplace

BHP will reduce marketplace size. Microsimulation estimates of the impact of BHP on the marketplace conducted before the start of open enrollment in October 2013 suggested that, in the average state under full ACA implementation, BHP would reduce the number of APTC-recipient marketplace enrollees by about half, from 3.1% to 1.6% of residents under age 65. Adding unsubsidized enrollees, the average marketplace was projected to shrink by 20% under BHP, from 6.5% to 5.2% of non-elderly residents.13 Now that the open enrollment period has ended, policymakers should be able to determine the percentage of marketplace enrollees whose incomes are at or below 200% FPL and who would leave the marketplace if their state implemented BHP. New York is the only state to publish income tabulations describing QHP enrollment. There, 39% of QHP beneficiaries are under 200% FPL and would leave the marketplace following BHP implementation; 35% qualify for subsidies with incomes between 200 and 400% FPL; and 26% of QHP enrollees are unsubsidized, with incomes above 400% FPL.14

A smaller marketplace is highly unlikely to become unstable, in most states. Before the ACA, purchasing pools could become dangerously unstable and experience so-called “death spirals” when small size made them vulnerable to adverse selection. Prior to the ACA’s insurance market reforms, a pool’s premiums were based on risk levels within the pool. As a result, a few costly enrollees in a small pool could raise premiums significantly. Healthy consumers could then buy the identical coverage for a much lower cost outside the pool. Many healthy consumers would leave the pool, further raising the average risk level within the pool, further raising premiums, causing an exodus of the healthiest remaining consumers, etc.

This is highly unlikely to happen with the ACA’s insurance reforms and market stabilization mechanisms, which share risk across the entire individual market. Insurance rating rules, risk-adjustment mechanisms, pooling requirements, and reinsurance seek to make the cost of coverage reflect the risk level of the individual market as a whole, rather than the risk level of enrollees within a particular plan or within the marketplace. Consequently, even if a relatively small marketplace attracts members who are comparatively unhealthy, marketplace premiums are unlikely to rise above the level charged outside the marketplace by more than a small amount. Moreover, the healthiest marketplace enrollees cannot purchase the identical coverage elsewhere for a substantially lower cost. At the same time, a coverage mandate brings healthy enrollees into the individual market, lowering the overall risk level. Illustrating the stability yielded by ACA-like insurance reforms, Massachusetts’s Commonwealth Choice marketplace, which was limited to unsubsidized consumers above 300% FPL, remained perfectly stable even though, during its first three years, it served less than one-half of one percent of non-elderly residents (see text box).15

A smaller marketplace may need to charge higher amounts to cover administrative costs. Some administrative costs vary with size and will decline if a marketplace shrinks. Other costs are fixed, however. The latter will need to be spread across a smaller base if a state implements BHP. Accordingly, if a marketplace relies on QHP assessments to fund administrative costs, the amount charged per plan will rise. If the result is higher QHP premiums, consumers who qualify for tax credits will be largely unaffected, but unsubsidized consumers would face a somewhat higher cost for coverage inside the marketplace than outside.16 To address this problem, BHP could help pay marketplace administrative costs, in proportion to benefits received, as is taking place in Minnesota (described below); or the marketplace could apply surcharges to BHP standard health plans.

A smaller marketplace may have less appeal to carriers. With fewer covered lives in the marketplace, carriers may be less interested in offering coverage. As a result, marketplace consumers could have fewer plan options. While this would simplify consumer choice, some consumers may have valued the options that are lost. Moreover, it is not clear whether carriers would have the same incentives to lower premiums and maximize market share if fewer covered lives are at stake.

A Tiny but Stable Health Insurance Marketplace: The Massachusetts ExperienceThe much greater stability of purchasing pools under reform has already been observed in Massachusetts, which implemented policies like those the ACA has put in place nationwide. That state’s Commonwealth Choice program began in July 2007, functioning as a health insurance marketplace serving individuals with incomes above 300% FPL and some small firms. By the end of 2007, slightly fewer than 15,000 people received individual coverage.17 Enrollment was still under 20,000 by the end of 2008.18 By July 2010, several programs for small employers were added, and total enrollment reached approximately 35,000, of whom nearly 27,000 received individual coverage.19 At no point did the small number of people receiving individual coverage through the exchange cause its destabilization.

If anything, greater challenges faced Commonwealth Choice than marketplaces in states that implement BHP. The Massachusetts program was limited to consumers over 300% FPL. More importantly, Commonwealth Choice offered no subsidies. By contrast, even in a state that implements BHP, marketplaces will be the only place where consumers with incomes between 200 and 400% FPL can obtain subsidized coverage, providing a force for stability and enrollment of healthy consumers that was not present with Commonwealth Choice.

Effect on the marketplace risk pool

BHP’s impact on the risk pool will depend on state circumstances and should not be exaggerated. The health status of BHP-eligible consumers will affect the risk pool of the marketplace. While lower income is associated with poorer health status, BHP-eligible consumers are more likely to be young adults, who are typically healthier, compared to others in the individual market. Analysts using the Urban Institute’s Health Insurance Policy Simulation Model found, for example, that because many Utah adults below 200% are relatively young, BHP implementation in that state would raise premiums in the individual market, hence in the marketplace, by approximately 2%; but in Washington State, where low-income adults tend to be older than in the country as a whole, BHP implementation would not change the individual market’s risk level.20

Regardless of the state, however, the magnitude of BHP’s impact should not be exaggerated. As noted earlier, marketplace enrollees are pooled together with other participants in the individual market. Accordingly, if consumers under 200% FPL move from marketplace to BHP, the risk pool of the entire individual market will be affected, not just the smaller pool within the marketplace. The proportionate impact on risk levels, hence premiums, will thus be smaller than is sometimes envisioned.

The effect of the BHP on the marketplace risk level also depends on the extent to which a state’s Medicaid program covers high risk individuals, including pregnant women and people with disabilities between 138 and 200% FPL.21 A state with broad Medicaid eligibility in this income range has fewer high-risk individuals whom BHP would shift out of the marketplace. How low-income adult demographics and Medicaid coverage play out—and so how BHP implementation would affect the individual market’s risk pool—vary greatly by state.

BHP can be structured to improve the individual market risk pool. If BHP is more affordable than subsidized marketplace coverage, BHP will likely attract some healthy consumers who would not enroll into the marketplace. CMS has made clear that federally-operated risk-adjustment systems cannot include BHP. However, a state-operated risk-adjustment system can combine BHP standard health plans with individual market carriers.22 That would keep consumers below 200% FPL within the individual market’s risk pool while adding to that pool the better risks attracted by BHP’s more affordable cost structure. The result would likely be a modest reduction to individual premiums charged both within and outside marketplaces.

Notwithstanding its appeal, this approach has trade-offs. Establishing and operating a risk adjustment system could require significant effort from state officials, even if much of the information technology infrastructure and methodologies required for such a system will already be in place because of the federal system. Moreover, BHP standard health plans will either receive or make risk-adjustment payments, modestly increasing the uncertainties such plans face at initial BHP implementation.

The impact on Minnesota’s marketplace of BHP-like coverage in 2014

Minnesota policymakers plan to implement BHP starting in 2015. As a transition policy for 2014, consumers with incomes at or below 200% FPL do not receive QHP subsidies in Minnesota’s marketplace. Instead, they are covered through the state’s preexisting (but reconfigured) Medicaid waiver program, MinnesotaCare (MNCare). Excluding consumers under 200% FPL from the state’s marketplace has not yet appeared to create significant problems along the lines suggested above.

QHP enrollment is reduced but remains robust. According to the first data available after the end of open enrollment, 47,902 consumers had enrolled in QHPs by April 13, 2014, and 37,985 had joined MNCare.23 Since then, MNCare enrollment has remained unconstrained, but only those qualifying for special enrollment periods have been able to sign up for QHPs. Accordingly, as of July 10, 2014, 52,233 consumers were covered through QHPs and 54,154 had joined MNCare.24 Approximately half of all consumers who applied for QHP subsidies were found eligible. These results were achieved despite significant problems with the marketplace’s early rollout.

Broad carrier participation provides consumers with numerous QHP options. Five different carriers, contracting with ten different provider networks, sponsored Minnesota QHPs in 2014. In the median county, consumers could choose from among 33 QHPs, including ten silver, ten bronze, eight gold, two platinum, and three catastrophic plans.25 While this range of choices was significant, it was somewhat narrower than in the average marketplace rating area nationally, where five carriers offered 47 QHPs.26 For 2015, although the low-cost carrier that covered the most QHP members has withdrawn from the Minnesota marketplace, another carrier has taken its place, and the total number of QHP options rose from 78 to 84.27

QHP reference premiums are very low, and the marketplace appears stable. Rather than experiencing adverse selection that raised QHP premiums and risked a potential death spiral, Minnesota had the country’s lowest benchmark QHP premiums in 2014, at least 17% below those in the second least-expensive state;28 and Minnesota’s marketplace showed no signs of instability.29 Even though the lowest-cost carrier has left the marketplace for 2015, average premium increases are forecast at 4.5 to 12 percent.30 State officials characterize 2015 benchmark premiums in Minnesota’s urban areas as continuing to be the lowest in the country.31

The marketplace reports that it can cover its administrative costs, despite a smaller base of QHP enrollment on which to levy premium surcharges. The marketplace has proposed a balanced budget for 2015, without requiring additional resources from the state or federal governments. Officials anticipate receiving $11 million from a 3.5% “withhold” of premium revenues from QHPs, along with $22 million from the Medicaid program—including MNCare. Marketplace operations involving enrollment and eligibility determination help achieve the purposes of MNCare and the underlying Medicaid program. The latter programs contribute to those functions in proportion to the benefits they receive. In effect, MNCare’s implementation shifted some of funding of marketplace administration from health plan assessments to Medicaid. Another factor facilitating financial feasibility is that the marketplace’s annual administrative costs are projected to fall by 69% in 2015 as the bulk of its work transitions away from initial infrastructure development and towards ongoing operations.32

While serving consumers under 200% FPL through a separate system of coverage has not yet created significant problems for Minnesota’s marketplace, problems might develop in the future.

Alternative state options to making coverage more affordable for low-income consumers

States may consider state innovation waivers beginning in 2017. Broad state innovation waivers, which can go into effect starting in 2017, may allow bold approaches that combine federal resources offered by the ACA and, in ways that are budget-neutral to the federal government, provide low-income consumers with more affordable coverage than they would obtain in marketplaces with standard ACA subsidies.33 However, CMS has not yet promulgated substantive guidelines, although Vermont long ago announced its plan to use such a waiver to implement a state-based single-payer system.

Until states can adopt innovation waivers, the most plausible alternative state-level method of improving affordability involves supplementing subsidies offered in the marketplace. For example, Massachusetts and Vermont, which used pre-ACA Medicaid waivers to provide subsidized coverage to adults with incomes above 138% FPL, are lowering the cost of marketplace coverage by supplementing PTCs and CSRs for residents with incomes up to 300% FPL. A Medicaid waiver provides federal matching funds for PTC supplements;34 but federal matching funds are not available for CSR supplements, which these states are therefore funding with state-only dollars.35

The ACA permits states to supplement marketplace subsidies.36 However, it is not clear that states with pre-ACA coverage less generous than that offered by Massachusetts and Vermont can obtain Medicaid waivers to help pay the cost of PTC supplements, since such states cannot argue that waivers are needed to prevent their low- and moderate-income residents from suffering harm. With or without such waivers, a state supplementation strategy involves state budget costs that need to be compared against potential costs under BHP.

A state supplementation approach has other important differences from BHP:

It does not shield low-income residents from the tax reconciliation risks of losing tax refunds or incurring federal income tax debts if they inaccurately project annual income when they enroll.

It would likely not provide the same reduction in “churning,” since most consumers would need to change plans when their income moves above or below 139% FPL, and since 12-month continuous eligibility will not be available.

It may or may not provide the same opportunities for state budget savings, depending on state circumstances.

It keeps consumers below 200% FPL in the marketplace, incorporating the healthier risks attracted by lower premiums into the individual market without requiring the state to administer risk adjustments.

Consumers between 138 and 200% FPL will retain access to marketplace networks, rather than Medicaid provider networks, which may improve their access to care.

It lets the state make coverage more affordable for residents with incomes above 200% FPL. For a BHP state to help such residents, it would need to combine BHP for consumers up to 200% FPL with marketplace supplements for consumers above that income level.

How Would a Rise in Risk Levels within a Marketplace Affect Consumers?Increased risk levels within a marketplace are shared throughout a state’s individual market. Each carrier pools all individual market enrollees, within and outside the marketplace. Moreover, risk-adjustments and reinsurance payments combine risks among all carriers’ individual market plans. As a result, if marketplace risk levels rise, marketplace premiums will increase by less than would be the case without market-wide risk sharing, but premiums will also rise for individual plans outside marketplaces.

To illustrate the impact of higher risk on various consumers, suppose average risks inside a marketplace rise by 10%, risks outside the marketplace do not change, the marketplace includes half of all individual market enrollees within a state, and the ACA’s risk-sharing mechanisms are fully effective. Individual market premiums will rise by 5%, both inside and outside the marketplace. Effects will vary among consumers, depending on whether they receive tax credits and which plan they choose, as follows.

Individual market enrollees, both within and outside the marketplace, who do not receive tax credits will see their premiums rise based on the average change in market-wide risk. In this example, their premiums will increase 5%.–

Tax credit beneficiaries who enroll in benchmark coverage will be unaffected. If a tax credit beneficiary selects the second-lowest cost silver plan in the marketplace, his or her premium payment depends entirely on income. The plan’s 5% premium increase will be paid entirely by higher tax credits.–

Tax credit beneficiaries who enroll in coverage more expensive than the benchmark plan will pay slightly more in premiums. They pay both their income-based amount and the difference between the benchmark premium and the higher premium charged by their chosen plan. If all marketplace premiums rise by 5%, that difference increases by 5%. For example, a single adult earning $25,000 a year who chooses the benchmark plan pays 6.92% of income in premiums, or $144 a month.37 If that adult instead enrolls in a plan that costs $50 more than the benchmark plan, the consumer’s monthly payments are $194. If all premiums rise by 5%, the differential between the consumer’s plan and the benchmark plan will be $52.50, rather than $50, so the consumer’s monthly payment will be $196.50—a 1.3% net increase.–

Tax credit beneficiaries who enroll in coverage less expensive than the benchmark plan will pay slightly less in premiums. They pay their income-based amount minus the difference between the benchmark premium and the lower premium charged by their chosen plan. If all marketplace premiums rise by 5%, that difference increases by 5%. To continue with the prior example, if a consumer earning $25,000 a year picks a plan costing $50 less than the benchmark, the consumer pays $94 a month. If all premiums rise by 5%, the difference between the consumer’s plan and the benchmark plan will be $52.50, rather than $50, so the consumer’s monthly payment will be $91.50—a 2.7% net decrease.